Mexican Peso Rises as Lower US Yields Boost Carry Trade Demand

The Mexican Peso gained ground against the US Dollar on Tuesday, as lower US Treasury yields and profit-taking in the Dollar revived the carry trade. The USD/MXN exchange rate fell by 0.55%, reaching a two-day low of 17.91 before settling at 17.97. This move came amid an upbeat market mood that supported emerging-market currencies, with the US Dollar Index (DXY) declining by 0.25% to 101.84.

Despite the Peso’s strength, Mexico’s consumer confidence dropped to 45.1 in September, the first decline since May, indicating reduced household spending on durable goods. Finance Minister Edgar Amador announced plans to prioritize local currency borrowing at fixed rates and long maturities to mitigate exposure to interest and exchange rate fluctuations, stating that 79% of the debt will be denominated in local currency.

Looking ahead, market participants are focused on Mexico’s upcoming inflation data for September and the release of the Bank of Mexico’s (Banxico) last meeting minutes. In the US, traders are anticipating the Federal Reserve’s FOMC meeting minutes from September, set to be published on October 7. Recent comments from Fed officials, including Mary Daly and Jeffrey Schmid, suggest that additional rate hikes may be necessary depending on economic conditions.

Technically, the USD/MXN pair maintains a bullish near-term bias, trading above key support levels around 17.26, with the next resistance seen at 18.1200. The Relative Strength Index (14) at 66.4 indicates firm but somewhat stretched upside momentum.